Small Business Optimism and Asset Based Lending On the Rise

Over the last few years, the economy has had a lot of ups and downs. According to the spring PNC Economic Outlook Survey, small business owners are recently more optimistic about the future of both their own companies and the economy in general.

Business owners are more willing to invest in new or upgrade existing facilities, equipment, staff and undertake expansions that have been put off for the last few years. Of course, additional capital is required so applications for commercial loans have increased. So have rejections.

Traditional banks have expressed a desire to increase lending to small business, but due to tighter regulations, also require stronger financials. It is tough for many small business to fit inside the
“bankable box.” The majority of companies that qualify are established, show consistent profits and very minimal financial problems. New businesses, those which have experienced setbacks, or face hyper-growth are finding it a bit more difficult to get the working capital they need.

There are options for small to mid sized business turned down at the bigger bank line. There are many alternative sources of commercial finance and they are also experiencing a steady increase in loan applications – and approvals — as smaller community banks and asset based lenders swoop in to fill the liquidity void. Less regulated, local banks can be more willing to see a small business through challenging times and asset based lenders mitigate risk by lending based on assets. As the 2011 graph on the right shows, last year’s asset based loan volume increased across many industry sectors.

As the optimism keeps coming, so will the commitment and search for capital, keeping lenders busy for the foreseeable future.